Whole life insurance refers to an insurance policy in which you are covered not for a limited term, but for the duration of your life as long as you keep paying policy premiums. Whole life insurance is not only a product that provides a death benefit to your surviving family members, but it also has an investment component. Premiums you pay for a whole life policy are higher than premiums for a term policy and the policy itself accrues a value and can be sold or cashed in.
While whole life insurance is a good investment product and a way to save for the future, it is no longer sold in Australia. When superannuation was made compulsory, whole life insurance policies stopped being sold. Instead of purchasing whole life insurance now, most Australians who want to plan ahead for their futures and protect their families will instead purchase other types of coverage like a term life policy, critical illness cover, and income replacement coverage.
What is whole life insurance?
Whole life insurance is an alternative to a term life insurance policy. There is a guaranteed death benefit that will be paid when you purchase the policy, and you can keep the policy in affect for your entire life as long as you pay premiums. You pay a flat premium over the course of your life for the policy, and a portion of the premium is used as an investment. Your policy acquires a cash value, which grows each year, and you can access the cash when you need it.
How were whole life insurance policies used?
Whole life insurance policies were used as a vehicle of forced savings and as a means of providing for the policyholder during retirement.
Some policies paid out dividend earnings to provide funds for policyholders to make investments, pay down premiums, and be withdrawn for other purposes. Policies accrued a cash value which grew each year, and which could be borrowed against if necessary. Policyholders could also sell or cash out of their policy to get access to funds when they needed money. Finally, like all life insurance coverage, upon the death of the policyholder, the death benefit would pay out.
Because whole life policies had an investment component as well as provided death benefits, these types of policies were beneficial to both the policyholder and his family members after his death.
Why is whole life insurance not sold any more?
The government made superannuation compulsory in Australia in 1992, to ensue that everyone has enough money to retire. Both employees and employers contribute to superannuation and the money put in to the superannuation fund is invested to provide money to live on during retirement.
Superannuation also encompasses a death benefit, which pays out if the fund member dies before he reaches retirement age. This death benefit is not sufficient, in many cases, to provide for the needs of the family- which is why people still buy life insurance despite the superannuation scheme.
Still, since superannuation now provides a required mechanism for retired savings, whole life insurance policies are no longer a part of people’s retirement plans and are no longer sold.
Can I get a whole life insurance quote or a whole life insurance policy?
You can no longer get a quote for whole life insurance in Australia, nor can you buy a policy. Whole life insurance is not offered by insurers.
What types of insurance should I purchase instead of whole life insurance?
Instead of buying whole life insurance, you should purchase term life insurance coverage. Term life insurance will pay out upon your death, as long as your policy remains in effect and you die within the policy term.
If you want to ensure you have long-term protection, consider guaranteed renewable term life insurance. A guaranteed renewable policy gives you the chance to get your coverage renewed again once the term of your initial policy ends. Your insurer cannot cancel your policy or decline to cover you because your health condition has worsened.
If you want the benefit of having the same flat fee premiums for the duration of the time you remain insured, which whole life insurance used to provide, you can also get a term life insurance policy that offers level premiums.
You should also consider critical injury coverage, total and permanent disability coverage (TPD coverage) and/or income protection insurance so you will have funds provided by your insurer in case you get sick or cannot work.
What are the differences between whole life insurance and term life insurance?
Term life insurance is generally more cost-effective than a whole life insurance policy because there is no investment portion and your premiums only go to providing insurance benefits. Term life insurance, however, is effective only for a limited term or period of time. If you die outside of the policy term and have not renewed, your beneficiaries will not receive a death benefit.
How to shop for life insurance?
Since you cannot shop for whole life insurance any more, shop around for a term policy that provides the protection you are looking for. Consider whether renewal is guaranteed, whether you have stepped or level premiums, what the premium costs are, and what benefits your loved ones will receive if you pass away.
Still have questions? Let's talk!
Confused? Not sure if this applies to your situation? Phone us on 1300 904 624 for some free, no obligation advice!